Two BRF poultry plants in Brazil suspended from exporting to Saudi Arabia

SAO PAULO (Reuters) - Two plants in Brazil’s Paraná state operated by food processor BRF SA have been suspended from exporting poultry to Saudi Arabia, dealing a blow to the company’s business activities in an important export market.

FILE PHOTO: A logo of Brazilian meatpacker BRF SA is seen in the headquarters in Curitiba, Brazil October 1, 2019. REUTERS/Rodolfo Buhrer

The Saudis blamed alleged irregularities in feed production disclosed by a Brazilian criminal probe conducted between 2014 and 2018 as the reason for imposing the restrictions, BRF said in a securities filing on Monday.

One of the plants targeted by the temporary ban was not selling anything to Saudi Arabia. The other, located in the municipality of Dois Vizinhos, was exporting about 6,000 tonnes a month to the country, the filing said.

Investors shrugged off the announcement, with BRF shares closing 0.61% higher.

Credit Suisse analysts said on Monday, however, that the financial impact of the Saudi move was more significant than restrictions imposed in October on products from BRF’s Abu Dhabi plant because of an audit.

Credit Suisse estimates Dois Vizinhos accounts for about 25% of Saudi Arabia’s purchases from BRF.

“The implicit message ... is not good. In fact, we believe the message conveyed has not been good since the end of 2016, when Saudi Arabia increased the import tariff to 20% (from 5%),” Credit Suisse said, referring to poultry.

In October, BRF announced an agreement to invest around $120 million to build its first chicken processing plant in Saudi Arabia.

“We cannot forecast the next moves of the Saudi government but, given these recent facts and the deterioration in the Turkish market as a consequence of the partial restriction on exports to Iraq, we are more cautious about BRF’s halal business,” Credit Suisse wrote in a note to clients on Monday, referring to food produced under Muslim dietary rules.

In the filing, BRF said that five other plants were still permitted to export poultry to Saudi Arabia and that it had started to redirect production to other industrial sites.

A Brazilian criminal investigation last December formally charged 11 people, accused of evading food safety checks at BRF.

The people implicated, including two former vice presidents for quality at the company, face allegations of using banned substances and misrepresenting to regulators the amount of certain ingredients used to produce feed premix.

BRF reiterated it had been cooperating with Brazilian and international authorities investigating alleged irregularities in its industrial processes.

Reporting by Gabriela Mello and Ana Mano; Editing by Marguerita Choy and Peter Cooney